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Incentive Comp Plans Driven by Business Model

Does your business model drive your incentive comp plans?

Incentive Comp Plans Driven by Business Model

The traditional thought process is to decide how your business will make money and then develop incentive comp plans to encourage employees to act in a way that supports the business model.  But that is not always the way things work in real life. Sometimes an incentive compensation plan that sounds great on paper ends up driving a very different set of behaviors than anticipated.

One business I worked with set up an incentive system to encourage profitable sales growth. Even the president was rewarded when the company grew sales and made more money. At least that is what the income statement said. However, the owners were not able to take more money out of the business. In fact they had to keep borrowing to support the increase in inventory that the company kept buying. Eventually the inventory was literally worth more than the whole business. The owners owed money to the bank and they could not take any more money out of the company. All because of an incentive system that was not what it first seemed to be.

A slight change in the incentive system to include the cost of inventory immediately changed behaviors at the company, brought the bank line down to zero, allowed the owners to take more money out of the company – and in the end – profits increased!

So, does your business model drive your incentive comp plans?

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Best Practices for Compensating Sales and Marketing People

You can’t have a business without making at least one sale. Making sure your salesforce is appropriately incentivized to grow your business and land the right customers is crucial. So, what are the best practices for compensating sales and marketing people?

Best Practices for Compensating Sales and Marketing People

In this blog, we’ll highlight a few of the best practices for compensating sales and marketing people. If you would like to learn more, then click here to read our WikiCFO on Sales and Marketing Compensation.

Many companies struggle to compensate their sales and marketing employees because it’s critical (need sales), complicated, and oftentimes a sensitive subject. In today’s world, it is critical for every company to have sales incentives because it makes economical sense. More sales equals more ability to pay your employees. But, many companies have experienced mixed success when implementing incentive compensation programs. First, they work best with an already well-established performance management processes. In other words, if you aren’t tracking performance, then start to. Keep in mind, these plans require several things, including the following:

  • Careful design
  • Excellent administration
  • Constant communication

Understand Your Customer and Sales Model

Before you can develop an incentive compensation program, you need to understand your customer and sales model. Does your company rely on deep, long-term relationships? Have a long sales cycle? Then your program will look differently from a company that sells products to a mass or retail market.

NOTE: Your incentive compensation plan should reinforce your company’s primary sales model.

Determine Incentive Program Objectives

What does your company really want to accomplish with these incentives? Identify 2-3 things that help you accomplish your goals. It could be any of the following or something else:

  • Market share
  • Revenue
  • Asset growth

These 2-3 things will be the guideposts for the program.

If you are hiring, then determine which candidates are the right fit for your company using our 5 Guiding Principles For Recruiting a Star-Quality Team.

compensating sales and marketing people

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compensating sales and marketing people


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